Matching the buyer’s price expectation is one of the biggest challenges in the current apparel export business. Finding a quick-fix solution, the Tirupur Exporters’ Association (TEA) has recently requested its members (RMG exporters) to ask their buyers to increase the garment prices by 10 per cent, as overall costing is increasing. TEA felt that the continuation of the same prices would lead to a more difficult situation, making it less viable for exporters to sustain in business.
Reacting to the move, top sourcing professionals are of the opinion that such initiatives will not solve any problem and might in fact, make the situation even worse. They believe that orders will drift away from India if the prices are increased and the only solution is for the suppliers to work towards streamlining and eliminating losses in the supply chain to be more cost effective. Apparel Resources talked to various stakeholders in the industry on this issue.
Majority of the apparel exporters agree with the sourcing viewpoint that price increase will increase troubles as buyers will shift the orders from India. Sharing his experience Vivek Saxena, Director, Moissanite Apparels, Noida informed, “During my personal visits and meetings with buyers in the months of May and June in Madrid, New York, Shanghai, and Hong Kong, no buyer was willing to increase any price. Buyers are rather ready to move the orders to Vietnam, Cambodia, Indonesia, Myanmar, and Bangladesh at the drop of a hat.”
Rather than increasing, buyers are always eyeing to pay a reduced price, so some exporters do believe that such a call from associations like TEA requesting for 10 per cent hike will at least help the exporters to maintain the price from buyers asking them to reduce the price any further. But, as a long-term solution, a large chunk of the industry stresses on the need of Government support in terms of increasing RoSL and duty-drawback rates. “As global competition is burgeoning for apparel export, so asking to increase the price can make business slip. So, rather than increasing the price, industry needs more support from Government,” says Vijay Jindal Director of SPL Limited, Faridabad, one of the leading apparel export houses.
Virender Bakshi, Country Head, Sergent Major, Tirupur, believes that increasing price is definitely not a good solution as no buyer will pay a higher price when they get the same item from our neighbouring countries at a lower price, that too with duty-free import to Europe. “The Government can also be asked to increase the incentives against exports and put FTA into existence for textile alone in a cluster manner without waiting for total FTA implementation,” he adds.
Apart from Government support, industry does feel that it is high time to look at supply chain and manufacturing efficiency. “The unseen margin is to be found by us and not by customers since their economy is not doing better than us to absorb higher prices,” says G. Manikandan, CEO, Apparel Global Consulting Tirupur. He further adds, “I would not say that the request by TEA will make a negative impact on export sales, yet asking for 10 per cent hike is not a wise thing. More importantly, we need to address the internal costing factors seriously as there is no mechanism to control it. Chances are, they will look for new avenues to source their demand.”
It is high time that the exporters started looking into elimination of wastage, increased productivity and provided some value additions, like design inputs to sail through this situation. Strongly agreed with this opinion, R. Sabhari Girish, CEO, Award Associates, Tirupur suggested that India exporters need to work on cut-to-ship ratio and adopt good industrial engineering (IE) practices. “Garment factories are planning for 107 per cent, cutting 105 per cent and shipping 97 per cent on an average. With the current situation, we don’t have a luxury of wasting 9 to 10 per cent. The rejections should be eliminated and the cut-to-ship ratio should drastically narrow down,” he added.
Vikram Jit Singh, Director, Fiori Creations, Faridabad is very vocal on this issue as he says, “In theory, our customers should pay a fair price considering their requirements, whether it is design, compliance, quality, or environmental standards. Those who want us to abide by a certain behaviour must be willing to pay for the privilege of assuring their customers that their entire supply chain operates in a certain way.” He added, “However, as we all know, in reality, it is simply about ‘might is right’. Orders get placed based on ‘cents and not standards’. Sufficient paperwork is generated on file to show adherence. Any deviation can simply be blamed on the factory, later. We are competing in a globalised, fiercely competitive open market. The ways to approach it, is to work on speed, cut waste and develop niches. That will pay off, either in savings or higher prices. The other sensible option is to leave the orders where there is no profit. Try that for a change.”
SP Mundra, MD, Rajat Collections, Bangalore share a different perspective, “If all the exporters in India join hands and work towards this direction, we may see an improvement.” But, on hindsight he himself added that the Indian exporting community does not appear to be united as one.
Irrespective of all consequences of price-hike, some of the apparel exporters are strongly in the favour of price-hike and they have their own logics. M. Ganesh Babu, Proprietor, Sudarsan Clothing Co., Tirupur, says that this suggestion is undoubtedly a good one. Tirupur garment exporters are providing the quality and services to command that 10 per cent premium from the buyers. And now that the price increase is an index, exporters will be able to pocket it. “Fashion is variety. I have never seen two people in the same kind of outfit. So as long as this remains true, Tirupur’s garment production will remain indispensable in the world of textiles. For, our strengths lie in small quantity runs, short deliveries, multiple tires of sampling and coping with last minute changes. All this, however, means spiralling fixed overhead costs to run our factories,” he added. Rajendran, Adarsh Knitwear, Tirupur sees the issue in a global perspective, since price rise is an international problem and wherever the buyer goes they will have the same problem. “I am sure buyers can accommodate this price and increase the retail price accordingly,” says Rajendran
Few of the exporters are focusing on sustainability to cope up with this challenge like International Trading Company, Tirupur, is in process of constructing a green factory. The Director of the company, Zahir SAIT, believes, “Increasing the selling price by 10 per cent is not going to solve the issue of being competitive. Sustainability in true sense is about being able to manage cost through change without increasing selling prices to customers at the given point in time, else they would move away from India.”
There are some other suggestions also from the industry. Meenu N Bhat, Tannvi Impex, Noida, suggests that it would be wise to first prepare customers for this increase with sufficient reasoning and some proofs so that the change can happen. “The need is to divide this into two phases with some time period in between. In the first phase, let TEA examine if price increase proves beneficial to the manufacturers, and based on that, introduce the next phase and move further with time and situation, else switch back to the old rates,” he concludes, judiciously.